Valero Energy (VLO)

The company faced some litigation regarding environmental pollution in the U.S. for manufacturing and selling gasoline containing some hazardous chemical. As a result, retaining investor confidence will be a challenge for the company.

As with other companies operating in this sector, Valero is prone to the risk of natural calamities such as hurricanes, which have the potential to damage its refineries and disrupt production.

The "perfect storm" that hit Valero in 2008 had several catalysts:

• First, we watched as the price of crude oil soared exponentially, the result of rocketing global demand overseas and a lack of effort in both the United States and other countries to increase production.
• Second, demand for distillates in the United States waned as the U.S. economy slowed down and distillate prices soared trying to catch up with crude prices. This made it very difficult for the increases in the price of gasoline to be able to keep up with increases in the price of oil, compressing Valero’s crack spreads from last year.

The company is exposed to the risk of political instability (as it imports crude oil from countries, such as Iraq, Kuwait, etc.). Political disturbances in these countries can impact the supply of oil products and affect prices, which will be a challenge for the company.